What you need to know about housing in the upcoming federal election
Canadians head to the polls on Oct. 21, and as you sift through the sensational news dominating the front pages, you may be wondering where the various major parties stand on another important issue – housing.
Here’s a primer on what we know so far.
Justin Trudeau, Liberal
First-Time Home Buyer Incentive
The new First-Time Home Buyer Incentive (FTHBI) program took effect on Sept. 2. Initially announced in the 2019 budget in March, with further details released in June, the program is intended to reduce monthly mortgage payments for first-time homebuyers, without increasing the amount they need to save for a down payment. The maximum mortgage limit was to be $505,000.
The program complements other measures in Budget 2019 to support first-time homebuyers with their down payment, such as increasing the RRSP withdrawal limit to $30,000 from $25,000. The incentive is available to first-time buyers with qualified annual household incomes up to $120,000.
Then on Sept. 12, the Liberals promised to expand the program to reflect the realities of higher priced markets. The move would provide more help to buyers in Toronto, Vancouver and Victoria, where the originally announced mortgage limit is unrealistic, by allowing homes valued at up to $789,000 to qualify.
What others are saying
“Realtors welcomed the FTHBI when it was announced in the spring because it represents tangible support for millennials, new Canadians and other first-time buyers hoping to fulfill their homeownership dreams,” says Jason Stephen, president of The Canadian Real Estate Association (CREA). “The extension of eligibility requirements is great news that will allow Canadians in Canada’s highest priced markets take advantage of the program and start building their lives in a home of their own. We have long pointed out that housing markets vary from region to region and market to market. (This) announcement shows that policymakers are receptive to that message.”
But even with these new allowances for higher priced markets, some in the mortgage industry say the program still falls short.
“In the three selected ‘high-cost’ cities for the First-Time Home Buyer Incentive expansion, the combined maximum between your mortgage and the FTHBI is now five times household income,” says James Laird, president of CanWise Financial and co-founder of Ratehub Inc. “However, using the stress test and OSFI-enforced debt servicing ratios, consumers will only be able to qualify for a home valued at 4.5 to 4.7 times their income regardless of their participation in the FTHBI. In cities where five times the income is the limit, the standard debt-servicing ratios will be a constraint, and buyers will qualify for 4.5 to 4.7 times their income, as usual. However, in cities where FTHBI limits buyers to four times their income, that will remain the qualifying constraint. Homebuyers will always be subject to the more stringent of the two qualifying constraints.
Laird also points out that the numbers used by the Liberals for the FTHBI expansion are incorrect, for two reasons. First, the minimum down payment amount used for their calculations is five per cent. However, when a home’s value is between $500,000 and $999,999, a homebuyer is required to put a 10-per-cent down payment. And second, the mortgage would still be susceptible to debt servicing ratios based on the stress test. With no other debt, a buyer can qualify only for a maximum of 4.5 to 4.7 times their income.
“This program is being positioned to first-time home buyers as a way to save money, which is misleading because it defers the amount they owe, and doesn’t save them anything. The program will lower a buyers’ monthly mortgage payment, but in exchange they have a growing debt burden. This burden grows by the amount that your house appreciates, which is often between five to 10 per cent per year.
“The program requires homebuyers to repay this obligation at the earlier of either when they sell their house, or 25 years,” says Laird. “Those who remain in their home for the full 25 years can expect the government to knock on their door and tell them that they owe two to three times the initial incentive that they took from the government. These will be people nearing retirement age, and close to paying off their mortgage, but the government’s ownership stake in their house will remain.”
Those who sell their first home and buy another home may be surprised when the government eats into the equity from the sale. This may limit their ability to afford the home they want to move into.
Bottom line? Ratehub does not recommend this program for any Canadians.
A better alternative, for buyers hoping to buy in expensive markets such as Toronto, would be a policy to allow first-time buyers have a 30-year amortization period, says Laird. “The 30-year amortization increases affordability by 10 per cent, while keeping mortgage payments exactly the same. This sets a homebuyer up to pay principle and interest in a manageable way, with the final outcome being that they own their home 100 per cent without the government owning a portion of their home. It is also easy to understand and implement.”
Other Liberal initiatives
In addition to the FTHBI, the Liberals, if re-elected, also plan to address the impact of foreign speculation, which they say drives up housing costs, by putting in place a consistent national speculation and vacancy tax for non-resident, non-Canadians. Also, the government had earlier:
- Introduced Canada’s first-ever National Housing Strategy, a 10-year plan to help Canadians find safe and affordable places to live
- Funded the construction of nearly 140,000 more housing units to be built by 2028, and
- Created the new Canada Housing Benefit to help 300,000 Canadians with the high costs of rent
Andrew Scheer, Conservative
- Fix the mortgage stress test to ensure that first-time homebuyers aren’t unnecessarily prevented from accessing mortgages, and work with OSFI to remove the stress test from mortgage renewals to give homeowners more options
- Increase amortization periods on insured mortgages to 30 years for first-time homebuyers to lower monthly payments
- Launch an inquiry into money laundering in the real estate sector and work with our industry partners to root out corrupt practices that inflate housing prices
- Make surplus federal real estate available for development to increase the supply of housing
What others are saying
“The measures announced by the Conservative party include suggestions we’ve been making to policymakers, such as fixing the mortgage stress test and removing it for mortgage renewals,” says CREA’s Stephen. “We’re also pleased with the proposal to increase amortization periods, which ultimately provides greater flexibility for homebuyers looking at financing to purchase a home of their own.”
Surplus federal land being made available for development to increase housing will help with home prices, as increased supply will help satisfy increasing demand for housing across the country, CREA says. “We also welcome the opportunity to address money laundering and other corrupt practices in the housing sector.”
Jagmeet Singh, NDP
- Promises to create 500,000 units of quality, affordable housing in the next 10 years, half within five years
- Will also spur the construction of affordable homes by waiving the federal portion of the GST/HST on the construction of new affordable rental units – a simple change that will help get new units built faster and keep them affordable for the long term
- Will re-introduce 30-year terms to CMHC insured mortgages on entry-level homes for first time homebuyers
- Will double the Home Buyer’s Tax Credit to $1,500
- Implement a foreign buyer’s tax on the sale of homes to individuals who aren’t Canadian citizens or permanent residents
Elizabeth May, Green Party
- Promises to appoint a Minister of Housing to strengthen the National Housing Strategy so that it meets the needs for affordable housing that are unique to each province, and oversee its implementation in collaboration with provincial ministers. The target would be 25,000 new and 15,000 rehabilitated units annually for the next 10 years
- Increase the National Housing Co-investment Fund by $750 million for new builds, and the Canada Housing Benefit by $750 million for rent assistance for 125,000 households
- Create a Canada Co-op Housing Strategy that would update the mechanisms for financing co-op housing, in partnership with CMHC, co-op societies, credit unions and other lenders
- Eliminate the first-time homebuyer grant
- Restore tax incentives for building purpose-built rental housing and provide tax credits for gifts of lands, or of land and buildings, to community land trusts to provide affordable housing
- Remove the “deemed” GST whenever a developer with empty condo units places them on the market as rentals
- Refocus the core mandate of CMHC to support the development of affordable, non-market and cooperative housing, as opposed to its current priority of supporting Canadian lenders to de-risk investment in housing ownership. With many housing markets demonstrably overvalued, and homeownership rates among the highest in the world, individual homeownership should not be the preoccupation of a public service housing agency and a national housing strategy.
What others are saying
The Toronto, Calgary and Vancouver real estate boards, together with the Quebec Professional Association of Real Estate Brokers, the Realtors Association of Edmonton and the Nova Scotia Association of Realtors are urging the federal political parties to commit to policies that will help remove barriers and reduce the cost of homeownership. These organizations are asking the federal political parties to adopt the following housing affordability recommendations:
- Revise the mortgage stress test to take into account its impact on different real estate markets across the country. The federal government should view the stress test as a flexible policy and adjust it based on changing economic trends and interest rates
- Replace the $750 First-Time Home Buyers Tax Credit with a $2,500 non-refundable tax credit for first-time homebuyers
- Reintroduce 30-year mortgage amortizations
- Consider regional differences when implementing nation-wide measures that affect homebuyers
“The Toronto Real Estate Board is encouraged by the attention being paid by federal political parties, during the current election campaign, on key housing issues affecting homebuyers,” says TREB President Michael Collins. “Specifically, the Liberal Party’s expansion of the First-Time Home Buyers Incentive Program, and the Conservative Party’s plan announced today to fix the mortgage stress test, increase mortgage amortization periods and make federal real estate available to increase the supply of housing.
“Housing affordability is one of the most important issues facing Canadians. We are glad that the federal political parties are acknowledging this with their respective plans. Two key issues that TREB believes have negatively impacted affordability are the federal mortgage stress test and mortgage amortization periods. TREB has been strongly calling for changes to the federally imposed mortgage stress test, since it was imposed, and for a 30-year amortization period for insured mortgages to be re-introduced, to give home buyers more flexibility and assist with affordability.”